Since BYD began to expand its automobile business, the concept of new energy vehicles has attracted more attention. In 2008, Buffett’s subsidiary became a strategic investor of BYD, which pushed BYD to the stage. However, in recent years, BYD’s development has not been smooth sailing. The safety and practicability of new energy vehicles have been questioned by many parties. After experiencing a big decline in 2012, the company’s share price began to pick up last year. Has BYD ushered in a new spring? Will Tesla’s entry into the China market have an impact on BYD? Can the launch of "Qin" promote BYD’s spring arrival?
BYD’s business can be divided into three categories: rechargeable battery business, mobile phone parts and assembly business, and automobile business including traditional fuel vehicles and new energy vehicles, in addition to expanding related new energy products.
BYD’s new energy vehicles always attract people’s attention for the first time. However, the other two major businesses of the Group also account for about 50% of the revenue sources, and their profitability cannot be ignored. In recent years, the proportion of automobile business income has increased year by year, and the company has invested more efforts in the automobile business that has attracted much attention. The proportion of secondary rechargeable batteries has basically remained at 10%, which is a relatively stable and mature business in the company, but it is not the future growth point of the company.The company’s future development focus is mainly on new energy business, including solar power stations, energy storage power stations, electric vehicles, LED and other green products..
BYD is very good at manufacturing rechargeable batteries, and its main customers include mobile phone brands such as Nokia, Samsung and Huawei, as well as global manufacturers of power tools and other portable electronic equipment such as Bosch and TTI. Lithium-ion batteries and nickel batteries produced by the Group are widely used in mobile phones, digital cameras, power tools, electric toys and other portable electronic devices and electric products.
In terms of mobile phone components and assembly business, BYD provides vertically integrated one-stop service, designs and produces mobile phone and computer components such as keyboard, LCD module and camera, and provides complete machine design and assembly services, but does not produce its own brand of mobile phones and computers. Its customers include: Nokia, Apple, HTC, Samsung, Motorola, Huawei, Pratt & Whitney, Toshiba and so on.
In 2003, BYD officially acquired Xi ‘an Qinchuan Automobile Co., Ltd., entered the field of automobile manufacturing and sales, and began the development journey of national independent brand cars, with production and sales exceeding 2 million vehicles. Automobile products include all kinds of high, medium and low-end series fuel cars, as well as automobile molds, auto parts, dual-mode electric vehicles and pure electric vehicles. Representative models include F3, F3R, F6, F0, S8, G3, M6, L3 and other traditional high-quality fuel vehicles, as well as the world-leading F3DM dual-mode electric vehicles, e6 pure electric vehicles and K9 pure electric buses.
BYD has also established a joint venture with Daimler, a luxury car brand, to jointly research and develop electric vehicles. At present, its Tengshi brand has been listed.
On April 28th, BYD released the first quarterly report of 2014, which realized operating income of 11.724 billion yuan, down 9.0% year-on-year, and realized net profit attributable to the parent company of 12 million yuan, down 89.4% year-on-year. According to the analysis of UBS Securities,On the one hand, the decline in sales volume is due to BYD putting most of its energy into the research and development of new energy vehicles, which leads to the slow pace of research and development and launch of traditional automobile business models; On the other hand, the competition in China’s automobile market is becoming more and more fierce. If you don’t advance, you will retreat, and the competitiveness of BYD’s old models (such as Su Rui and F3) will decline.BYD also admitted in the report that the decline of traditional automobile business was the main reason for dragging down BYD’s profit in the first quarter.
BYD Group not only has government payment in policy, but also has considerable government subsidies. Take its pure electric vehicle E6 as an example, the price range of E6 is 309.8-33 million. E6 pioneers can enjoy a total of 114,000 yuan of state subsidies and local subsidies. The price for consumers to buy e6 luxury terminals is 195,800 yuan, and the price for purchasing e6 elite terminals is 216,000 yuan. Government subsidies account for about 34% of the original price, and the subsidized price is really attractive to consumers. Judging from the annual reports of the past five years, government subsidies have been increasing, reaching about 670,000 in 2013. Although it is still not enough to compensate BYD’s high expenses, government subsidies are only a unique policy of BYD in its growth period. However, in the short term, the government’s support attitude towards BYD Group’s projects is very clear, and everything depends on whether BYD can grasp the development opportunities.
In addition, BYD’s R&D expenditure has remained at a level of about 1.3 billion in the past five years, with no significant increase or decrease, and the distribution expenses are basically between 1.5 billion and 2 billion.
BYD’s operating cash flow decreased by nearly half in 2013, and most of the cash at the end of the year came from cash flow from financing. On May 30th this year, BYD also issued 121,900,000 new H shares to supplement its working capital, and the funds raised will be used for the new energy automobile business. However, the market reactions in the two places were mixed, with A shares rising sharply and H shares falling sharply.
Through the above financial analysis, we find that BYD is still in the growth stage, with huge expenses in all aspects and weak current profitability. Although the current P/E ratio is nearly 130 times, most investors value its profitability in the next few years.After BYD released its first quarterly report in 2014, its profitability and cash flow did not improve, resulting in a sharp drop in its share price. Among them, the investment loss reached nearly 8.6 million RMB. The company disclosed that most of the losses were caused by the investment loss of the joint venture company. The parent company increased investment and development in all aspects at the same time when the business has not grown steadily. This can only make up for the tight cash flow by issuing additional shares or increasing financing.
BYD has not really stimulated consumers in private cars, mainly because consumers are worried about endurance and safety, and BYD’s car design and logo have been criticized by the masses. For consumers, environmental protection may be far less important than appearance and performance.
Compared with other automobile brands, BYD is obviously favored by more governments, which is related to BYD’s more professionalism in the field of new energy. At present, there are 800 E6 pure electric taxis and 220 K9 pure electric buses in Shenzhen, which are used as pilot cities to promote electric buses. In May, 2013, the pure electric bus was operated in Hongkong. Outside the China market, BYD’s K9 electric bus had trial operation projects in the United States, Spain, Hungary, Austria, Belgium and the Netherlands.
Investment point of view
New energy industry
BYD is a leading representative in China in its industry. With the reduction of natural resources such as oil, the traditional automobile industry will be the most affected, and the future will be the world of new energy industry. Therefore, the state will give subsidies to the new energy industry in terms of policies and funds. However, BYD, as a battery-making enterprise, has not invested in the field of new energy vehicles smoothly. Although the enterprise has its own brand and professional technology, many traditional automobile brand companies have begun to develop new energy vehicles or low fuel consumption, such as Toyota Prius, Nissan leaf and Ford fusion. With its strong capital, original market share and brand awareness, BYD’s automobile business is also facing many competitors. Future new energy vehicle projects in China still depend on brand building, energy saving and green premium ability.
At present, BYD has adjusted its three major businesses in the future to photovoltaic power generation, energy storage power stations and new energy vehicles, and it is expected that it will continue to invest in research and development and construction of energy storage power stations in the short term. At the technical analysis meeting in 2013, Wang Chuanfu, the president of the group, announced the "dual-drive strategy"-one is to develop energy-saving technologies in both traditional fuel vehicles and new energy vehicles, and the other is to promote dual-engine dual-mode in the personal market and pure electric vehicles in the public transport market. From the naturally aspirated engine with energy-saving technology, to the world-synchronous TID powertrain, to the green hybrid technology, to the dual-engine dual-mode power and pure electric vehicles, BYD has completed the strategic layout from single-drive to dual-drive, and gradually strengthened the energy management system.
The investment in BYD should not only be analyzed from its current profitability or short-term stock price changes, but also from a medium-and long-term perspective to look at the strategic value and significance of the new energy automobile industry chain and lock in the future technological innovation and consumption orientation.
Although the mobile phone parts and assembly services and rechargeable battery business, which together account for about 50% of the revenue, are fiercely competitive in the industry, BYD can still obtain objective income in this field with the increase of mobile phone sales. The capital market is optimistic about this business, and many rating agencies rate BYD Electronics as "buy".
BYD and Tesla
Tesla, which has attracted much attention, began to enter the China market and set up energy storage stations in major cities. Although Tesla also produces new energy vehicles, it is not completely competitive with BYD. Tesla is the first electric vehicle in the world to give up the traditional lithium iron phosphate battery for vehicles and choose a laptop battery. In fact, the price of Tesla in the United States is more than 80,000 US dollars, and the tariff, value-added tax and transportation cost entering China account for 33% of the current domestic price. Tesla is positioned in the high-end market, and its price is far from BYD. Comparing BYD’s "Tang" to "Model X" is because Tesla’s seven-seat SUV also adopts the same power layout: one motor for the front and one motor for the rear axle, thus forming a four-wheel drive system. However, because the target market is different and the consumer demand is different, BYD’s R&D, products, market and brand positioning are different from Tesla’s.
However, it is worthy of our attention that Tesla’s cruising range can reach 500 kilometers, and BYD Qin’s cruising range can reach 70 kilometers in pure electric mode. Although the hybrid mode can be used to make up for the lack of cruising range when running long distances, if Tesla can make a model with mass price in the future, it may pose challenges to BYD.